Critically, the population to employment ratio is going up as are average hourly earnings, he added.

El-Erian also weighed in on the conspiracy theories surrounding the drop in the unemployment rate and the lackluster job growth saying, "This is just what happens when you have two different ways of collecting data."

But the stock market response Friday was tepid, because the market "realizes we need to pivot,” he said. “So far, we’ve had a rally based on chopping off the tails of catastrophe between what the Fedand ECBhave been doing. That has reduced the tail risk in the short term.”

El-Erian on Jobs & Economy

Mohamed El-Erian, Pimco CEO & Co-CIO, discusses the 7.8 percent unemployment number, and says "the rally can only continue if the fundamentals take control."

He continued, “But in order to keep going, we need the handoff to fundamentals. And today’s employment report, while better is not strong enough for that handoff.”

Unless the economic fundamentals start to improve and catch up to market valuations, valuations will start coming down, El-Erian cautioned. That would put pressure on equity markets.

Pimco has been advocating buying Treasury Inflation-Protected Securities (TIPS) as it worries about inflation.

"In three to five years, inflation is more likely to be near 3 percent than the Fed's 2 percent target," El-Erian said.